Basel Endgame strays further from sight

Following consultation with HM Treasury, on 17 January 2025 the Bank of England announced its decision to delay the implementation of Basel 3.1 by a year, pushing back the proposed effective date to 1 January 2027.

Basel 3.1 completes a suite of post-global financial crisis reforms to banks’ capital requirements, as developed by the Basel Committee on Banking Supervision (BCBS). The UK, like other member jurisdictions, has been considering how to adapt and apply the package of reforms. This will ultimately involve HM Treasury revoking provisions currently legislated for in the UK Capital Requirements Regulation, and the PRA making rules to replace them.

On 12 September 2024, the PRA published its second near-final policy statement and rules for implementing the standards in the PRA rulebook (PS9/24), which delayed the implementation date by six months to 1 January 2026. The latest announcement marks the third delay to the original implementation timeline.

Consistent with the approach taken for the six-month delay in PS9/24, the transitional period for phasing in the output floor, which aims to address identified shortcomings in the use of internal models to calculate minimum capital requirements, will be reduced by six months. Therefore, 1 January 2030 continues to be the proposed end-date for full implementation, in line with the proposals originally set out in CP16/22.

As was the case in relation to previous delays, the Bank of England’s decision was informed by the approaches taken by regulators and legislators in other significant jurisdictions – in particular, the US. The Bank of England has attributed its latest postponement to the current uncertainty around the timeline for implementation in the US, nodding to the second Trump administration and the expected dilution of existing regulatory rules. Perhaps unsurprisingly, the Bank of England cites related competitiveness and growth considerations as motives for the delay.

The postponement puts the UK on a different trajectory to the EU, which applied most of the rules, with some differences, from 1 January 2025. Switzerland similarly implemented the standards on 1 January 2025. The EU’s delay to the implementation of BCBS’s fundamental rule of the trading book framework until 1 January 2026 is a notable exception.

While an additional year-long delay to UK implementation will be welcomed by some, a third postponement is only likely to heighten regulatory expectations for strong day-one compliance. This will require, in the intervening period, sustained focus and prioritisation by banks on the endgame.